With 30-year fixed mortgage rates still hovering around 3%, homeowners who did not refinance during the pandemic could be missing out on big savings.
Ninety-one-year-old investment sage Warren Buffett would wonder why you waited.
He told shareholders at his Berkshire Hathaway annual meeting in May that there are still great opportunities for borrowers, thanks to the Federal Reserve’s pledge to keep its key interest rate close to zero .
“The economy fell off a cliff in March Buffett said. “He was resuscitated in an extraordinarily effective way by the actions of the Federal Reserve.”
Mortgage rates have fluctuated this year, but they’re still low enough that you can save hundreds of dollars a month by refinancing your mortgage.
Use Buffett as a template
To give the economy some cushioning from the coronavirus crisis, the Fed last year cut its key interest rate almost to zero. More recently, Fed officials have signaled they may keep rates near zero until 2023.
“It’s a fascinating time [for borrowers]”Buffett told his investors, adding that the low interest rate environment” is extremely pleasant. “
Although Buffett hasn’t found a way to borrow at 0% interest (at least not yet), his holding company Berkshire Hathaway (BRK.A, BRK.B) closed last year because it benefited from the Fed’s low interest rate environment. .
In April 2020, Berkshire said that thanks to a Japanese yen-denominated bond offering, it was taking on the equivalent of more than $ 1.8 billion in debt – at rates ranging from 2% to a mere 0.674%.
You won’t find 30-year mortgage rates this low, but 30-year fixed-rate mortgages are currently averaging 2.99%, according to the latest data from mortgage giant Freddie Mac.
Although rates are still historically low, they are expected to increase soon. Freddie Mac has forecast 30-year rates to hover around 3.4% by the end of 2021 and will average 3.8% by the end of next year.
Refinancing Can Save Hundreds Per Month, Survey Finds
In an interview with CNBC in 2017, Buffett called the 30-year mortgage “the world’s best instrument” – because of your ability to refinance when you find a lower rate.
“If you’re wrong and the rates hit 2%, which I don’t think they will, you pay it back,” he said at the time. “It’s a one-sided renegotiation. It’s an incredibly attractive instrument for the owner, and you’ve got a one-sided bet.”
Despite the potential for big savings, many American households have been slow to get on the refinancing train. In the year of ultra-low mortgage rates that ended in April, less than a quarter of homeowners refinanced their loans, according to a Zillow survey.
Of those who refi, nearly half (47%) are now saving $ 300 or more each month, according to the same study.
Still on the fence about a refi? You’re in a good position to take out a new loan if you currently have a 30-year mortgage of around 3.75% or more and your credit rating is exceptional (800 or more) or very good (740-799).
When Buffett says it’s a good time to borrow money. So maybe it’s time for you to lower the cost of your mortgage.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.